Gold Monetization Scheme

Gold Monetisation Scheme is a scheme that allows depositors of gold to earn interest in their metal accounts and the jewelers to

obtain loans in their metal accounts. Replacing both the present Gold Deposit Scheme and Gold Metal Loan Scheme, this new scheme, introduced in the Union Budget for 2015-16 by Union Finance Minister Arun Jaitley, will help banks/other dealers to monetise this gold.

Why was Gold Monetisation Scheme introduced?

Stating that India is one of the largest consumers of gold in the world, Union Finance Minister Arun Jaitley proposed during the Union Budget for 2015-16 fiscal a number of steps to monetise the gold in India. He stated that there was more than 20,000 tonnes of gold in India; however, most of it was not monetised in any way like trading. Gold Monetisation Scheme was proposed as an alternative to the existing Gold Metal Loan Scheme and Gold Deposit Scheme. He said that under the new scheme, the depositors of gold would be able to earn interest through their metal accounts and the jewelers would be able to obtain gold loans through the metal accounts.

Under the programme’s rules and regulations, banks and other dealers will be allowed to monetise this gold as well. Jaitley also announced the Sovereign Gold Bond. It is an alternative financial asset, a substitute of buying gold in its metal form. The bonds are supposed to have a definite rate of interest. The bondholder can also redeem the bonds at the face value of the gold that they own at the time of redemption.

The Union Finance Minister also stated that the national government would soon start working on minting gold coins. These Indian gold coins will have the Ashok Chakra on the face. It is expected that with the introduction of these coins, there will be less demand for coins that have been produced outside the country, as well as it will play a major role in recycling the gold present in the country.

Steps to followed for Monetising One’s Gold

As soon as the gold is deposited in the metal account, it will start earning interest. The process will begin with a customer bringing gold to a bank’s or a specified agency’s counter. Then the concerned authorities will determine how pure the gold is. After that, the precise gold will be credited to the account. Customers can also be asked to fill in a ‘Know Your Customer’ form as a part of the KYC process. After the gold is deposited, the banks or agencies will lend it to jewelers for a rate of interest that is a slightly higher than what is being paid to the customers.

The principal amount, as well as the interest, will be calculated on the amount of gold being deposited. For example, if someone puts in x kilos of gold and receives y percent interest on it, then at the end of the tenure, that person will receive x+y kilos. The rate of interest to be paid to the customer will be determined by the banks in question. It is likely that the gold deposits will be maintained for tenure of at least a year.

The minimum amount that one is allowed to deposit in these accounts has been fixed at 30 grams. It is expected that this would at least encourage people to make small deposits in the initial phase. The gold can be deposited in any form- jewelery or bullion. Customers will be allowed to take either gold or cash at the time they redeem the accounts. However, they need to make their preferences clear right at the time they avail the plan.